AMD 2005 Annual Report Download - page 39

Table of Contents
Interest Income and Other Income (Expense), Net
2005 2004 2003
(In thousands)
Interest income $ 37,210 $ 18,013 $ 19,702
Other income (expense), net (23,639) (49,163) 1,414
$ 13,571 $ (31,150) $ 21,116
We recorded a net income of interest income and other income (expense), net of $14 million in 2005 compared to a net expense of approximately $31
million in 2004, an increase of $45 million. This increase was due primarily to a decrease in other expense, net from $49 million in 2004, the components of
which are discussed below, to $24 million in 2005. The $24 million of other expense, net in 2005 consisted primarily of a loss of approximately $10 million
during the fourth quarter of 2005 resulting from the mark-to-market to earnings of certain foreign currency forward contracts which became ineffective in
hedging against certain forecasted foreign currency transactions that are now not expected to occur due to the change of functional currency for AMD Fab 36 KG
from the euro to the U.S. dollar and approximately $14 million of commitment and guarantee fees incurred in connection with the Fab 36 Loan Agreements. In
addition, interest income increased approximately $19 million in 2005 compared to 2004 due to a 135 percent increase in average interest rates and an increase in
our average cash balances.
We recorded a net expense of interest income and other income (expense), net, of $31 million in 2004 compared to a net income of approximately $21
million in 2003. This expense in 2004 was due primarily to a charge of approximately $32 million related to a series of transactions pursuant to which we
exchanged $201 million of our 4.50% Convertible Senior Notes due 2007 (the 4.50% Notes) for our common stock. The charge represented the difference
between the fair value of the common stock issued in the transactions and the fair value of common stock issuable pursuant to the original conversion terms of
the 4.50% Notes. In addition, interest income and other income (expense), net, in 2004 included a charge of approximately $14 million in connection with our
prepayment of the term loan agreement between our German subsidiary, AMD Saxony Limited Liability Company & Co. KG and a consortium of banks in order
to finance Fab 30, or the Fab 30 Term Loan, and a loss of approximately $6 million during the second quarter of 2004 resulting from the mark-to-market to
earnings of certain foreign currency forward contracts that we used as economic hedges of forecasted capital contributions to AMD Fab 36 KG, which do not
qualify as accounting hedges. Interest income was flat in 2004 compared to 2003.
Interest Expense
Interest expense of $105 million in 2005 decreased six percent compared to $112 million in 2004. In 2004, interest expense included approximately $26
million of interest under the Fab 30 Term Loan. Because we prepaid this loan on November 2, 2004, we did not incur any interest in connection with this loan in
2005. In addition, interest expense incurred on our 4.50% Notes was $9 million in 2005 compared with $19 million in 2004 because the holders of an aggregate
principal amount of $201.5 million of these notes converted their notes into our common stock during the fourth quarter of 2005, and we exchanged an aggregate
principal amount of $200 million of these notes in a series of transactions during the fourth quarter of 2004 for shares of our common stock. Also, during 2005,
we capitalized interest of $35 million in connection with Fab 36 construction activities in Dresden, Germany, compared with $9 million in 2004. Partially
offsetting these decreases in interest expense was the higher interest expense of $48 million incurred in connection with our 7.75% Senior Notes due 2012 (the
7.75% Notes), which we sold on October 29, 2004, compared with $8 million in 2004 and interest expense incurred pursuant to capital leases which increased by
approximately $10 million in 2005 compared with 2004.
Interest expense of $112 million in 2004 was approximately flat compared to $110 million in 2003. Interest accrued on the 7.75% Notes during 2004 was
partially offset by the absence of interest expense, as of November 2, 2004, for amounts outstanding under the Fab 30 Term Loan, and the absence of interest
expense
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Source: ADVANCED MICRO DEVIC, 10-K, February 27, 2006